Falabella SA

SGO:FALABELLA

Earnings Call Transcript

[Operator]

Good day, ladies and gentlemen, and welcome to Falabella Earnings Call. My name is Gigi, and I'll be your coordinator for today. [Operator Instructions]

In the first part, Mr. Raimundo Monge, Head of Investor Relations, will present a summary of the consolidated results for the first quarter of 2023. Then Mr. Jaime Ramírez, Chief Executive Officer of falabella.com, will update the Marketplace business strategy. Following this, Mr. Gaston Bottazzini, Chief Executive Officer of Falabella S.A., will share some highlights on the performance of the company. Afterwards, we will open the line for questions. [Operator Instructions]

Now we'll start with the conference with Mr. Raimundo Monge.

[Raimundo Monge, executive]

Thank you, Gigi, and good afternoon, everyone, and welcome to Falabella's First Quarter 2023 Earnings Call. Joining me today are Gaston Bottazzini, our CEO; Jaime Ramírez, our falabella.com CEO; and Alejandro Gonzalez, our CFO. I would like to remind that numbers presented during this call would be according to IFRS rules expressed in U.S. dollars and rounded to millions. Therefore, certain small difference may arise with the public financial statements.

I will start the call by going over some key operational highlights of our physical digital ecosystem. Let us begin reviewing from Slide 3 onwards. In the retailers and malls, we -- the slowdown in consumption and high inflation levels impacted our operations. In the case of our retailers, the business that suffered the most was Department Stores and Home Improvement in Chile. The consolidated revenues of Department Stores reached $806 million in the quarter, a decrease of 17%; while Home Improvement reached 16, down to $1.6 billion; and Supermarkets increased 1%, reaching $648 million. Mallplaza's revenues reached $126 million, an increase of 11%.

In this digital banking side, our loan portfolio remained flat. We have introduced more restrictive origination policies, which have helped us to stabilize the NPLs in Chile. There is still a challenge in Peru and Colombia.

Our digital strategy has helped us to improve the level of our service and increase the number of customers, outperforming the market, becoming the leading bank in a number of credit cards in Chile and Peru and the second largest player in number of checking accounts in Chile.

On the payment side, we continue to build the best payment experience, doubling our active digital wallet users up to 1.4 million, while we reached $646 million in TPV during the quarter. On the loyalty program, the active participants reached 18.7 million across the region with over 2.6 million redemptions during the first quarter.

In terms of the financial -- the key financial results, consolidated revenue decreased 6% year-over-year, mainly due to decline in Chile in the Home Improvement and Department Stores business, which were partially offset by the banking business, which increased 22% year-over-year.

In terms of the gross profit, it decreased 17%, mainly explained by the Department Stores in Chile, where they decreased 36% due to lower consumption level and high promotional activity, and the Home Improvement in Chile, which declined 24%, due to lower sales volume, mainly explained by the decline in the construction sector. On the banking side, we saw an increase in the risk cost and in the funding cost.

In terms of the EBITDA, it fell 57%, reaching $161 million. 80% of that decline is explained by the businesses in Chile, particularly Department Stores, Home Improvement and banking. Our SG&A expenses grew less than 1%, despite an environment of high inflation in the region, mainly due to our efficiency plan. Today, more than 90% of the initiative of that plan are in execution.

Finally, in terms of net result, we had a loss of $76 million. As you know, given the IFRS regulation, our real estate assets are not adjusted for inflation, but financial liability are adjusted for the U.S. [ West operation ].

Now I would like to leave you with Jaime Ramírez, our falabella.com CEO.

[Jaime Ramírez, executive]

Thank you, Raimundo, and hi, everyone. It's great to be here in my first earnings call, and I'm going to be talking a little bit about our Marketplace business. And I'm going to start with the overall results. And during this first quarter, despite a decrease of 11% in total GMV online, the good news is that we continue to see an increase in 3P GMV, which grew approximately 23% between the first quarter of 2022 and the first quarter of 2023, which means our strategy of growing 3P GMV is actually being successful.

The other piece of good news is that we continue to see an increase in the penetration of 3P GMV, which grew about 700 basis points between the first quarter of last year and this quarter, going up from 18% to 25%. So 1/4 of our GMV is now coming from 3P sales.

The second thing that's important is that we actually have good news on the execution front of our platform. We launched falabella.com in Colombia during the first half of April, and this now concludes the execution of what we call the Andes project, which basically encompass the launch of our new marketplace in all key markets in the Andean region, Chile, Peru and Colombia.

This concludes the execution of the project, which has been very relevant for us. As you know, this is a centerpiece of our strategy, our Marketplace, because it allows us to integrate not only the catalog of our stores, of our retailers, Falabella, Sodimac and Tottus, it also brings in the Marketplace component. We now have over 18,000 sellers in the region in all 4 countries. But we are also being able to offer all of our financial services in the Marketplace, including credit to sellers, but also allows us to enhance our loyalty program as well.

As you know, this is a project that allowed us also to create synergies by combining all of our e-commerce platforms into one. So we now are being able to be more efficient in what we invest in creating traffic. So our CIR, which is the percentage of our GMV that we invest in generating traffic, is going down, which is also positive news. And we are also being more efficient in our operations, particularly in terms of logistics.

Now going forward, this Marketplace will remain a critical piece of our strategy. As you know, we have 3 pillars that we have been focusing on going forward. The first one is how do we keep growing our catalog, right? We want to be able to bring in more and more sellers. As I mentioned before, we are up to 18,000 in the region, but we expect that number to continue going up, and we are going to do that by improving the experience that we offer to our sellers.

And the good news is, as we enhance the experience for sellers, we are also being able to capture more and more take rates. So we are being able to monetize more our strategy. As an important piece of data, our take rate -- total take rate went up from about 18% in the first quarter of last year to about 21% in this quarter. And this total take rate includes the basic take rates we charge to 3P sellers includes the shipping component as well as some value-added services, such as advertising and sponsored products. So we're very happy with that.

The second pillar, which is also very important for us, is logistics. And there, we're focusing mostly on 3 things, right? So one is to become more efficient, right? So being able to decrease the cost per shipment, which has been going down over the past few months. The second one is to increase speed, and we're focusing there on the percentage of packages that we're being able to deliver in 48 hours or less and that's also going up, which is good news. And finally, increase our accuracy. So our on-time delivery, which has also running up and remains above 90%, which is a great indicator.

Finally, the third pillar of our strategy is our experience for our customers, right? So we are focusing on delivering the best experience for our customers. And we're doing that by improving our browsing, our findability, so making sure that our customers are being able to find what they're looking for and then also making our checkout process at easy and as quickly as possible.

So all of these 3 pillars will allow us to continue growing our marketplace, adding new sellers, bringing in new customers and ensuring that we become the marketplace of choice in the markets where we offer.

Now I'm going to give the phone to Gaston.

[Gaston Bottazzini, executive]

Thank you very much, Jaime. Good morning or good afternoon, everyone, and thank you for joining us in this call.

So in very general terms about this quarter, I would say that in line with our expectations and what we commented in the last call, we continue to see a -- low levels of dynamism in consumption, particularly in Chile, and this has resulted in performance that has also been consistent with what I've seen in previous quarters in terms of sales, margins and at the same time, risk levels in the bank.

This, of course, has resulted in a temporary increase in our leverage levels, which is an area of work for us. And our operation has been very focused on executing the efficiency plan we have already announced with high levels of progress there and I think, visible impact, which is going to become more visible going forward as the onetime impacts of that efficiency program are left behind.

We also work very hardly on working capital reduction, both through inventory controls and through the -- as a result of the lower growth of our loan portfolio and at the same time in generating cash flow for the operation. And we can say that we have significantly improved our position in all those 3 fronts. We have more efforts and, our continued effort will be on these levers and additional initiatives to bring leverage levels down and confirm our commitment to maintaining our investment grade.

We are, at the same time, seeing some improvements in the performance of the business. For example, the stabilization of delinquency levels in the bank in Chile, which Raimundo previously mentioned, as well as starting to see more stable levels of delinquency in Peru and Colombia, though those 2 markets are behind Chile in terms of where they are in the curve. On the retail side, we are seeing, as a result of a better position in terms of inventory, improvements in margins, even though we're not seeing yet improvements in sales levels.

Beyond this, and I think Jaime made a highlight of that today, but we continue to see progress in the development of our longer-term growth engines, in particular, with the launch of falabella.com in Colombia. We have hit a major milestone in the journey to develop a leading marketplace in the region. And at the same time, all of our other 6 platforms are now fully operational in the Andean region, and all of them have teams behind them improving functionalities and customer experience permanently.

I would highlight there our digital banking platform, which has launched new features focused on the customer acquisition, the customer onboarding process. And as a result of that and in spite much more stringent levels of risk hurdles, we have continued to open accounts at a very high rate. So those are 2 highlights of how we're making progress in these longer-term growth engines, which we believe are a key to the development of our digital and physical ecosystem going forward.

So with that, I will, again, thank you very much, and open the room for Q&A. Thank you.

[Operator]

[Operator Instructions] Our first question comes from the line of Andrew Ruben from Morgan Stanley.

[Andrew Ruben, analyst]

I had 2 items, if I may. First, on the gross margin. We saw the continued contraction. And I'm curious if you could just give us a sense of where you are in terms of the promotion cycle, inventory clearance or any other levers for gross margin going forward.

And then second, maybe for Jaime, on the Marketplace. Interesting commentary around take rates. I'm curious how you think about the progression of take rates from here and what those drivers might be.

[Gaston Bottazzini, executive]

Great. Thank you, Andrew, for your questions. So in terms of gross margins, as I mentioned, and I think Raimundo as well in his description, we are in a better inventory position with more or less 13% less inventory year-over-year and also a much more conservative buying program, particularly in apparel and those areas where inventory translates very heavily into markdowns.

We have also developed, over the last year or so, more local sourcing to complement cross -- transoceanic sourcing. And as a result of that, have more flexibility to be a lot more conservative in the buying and at the same time, maintain the flexibility to react if demand happens to be higher. As a result of that, we are seeing now for the upcoming Mother's Day and for the upcoming Cyber Days at the end of the month, good prospects of sales with much better margins than we have shown in the past.

[Jaime Ramírez, executive]

Great, Andrew. And on the second point -- actually, if you open up that 21% that I was talking about earlier, so as I mentioned, it has basically premium components, actually 4. So the first one is the basic take rate, which is currently around 13%. The second one is our shipping revenue component, which is around 6%. And then you have 2 additional components, the value-added services, which is about 1%. And then others, which is another 1%.

We don't see a lot of space really to grow the basic take rate a lot and not a lot on the shipping revenue, but we do see an opportunity to increase our value-added services. As I mentioned, that's currently around 1% -- slightly below 1%, and we see an opportunity for that going up even in the short term, maybe 1% or 2%. So we expect that the total take rate could go up to somewhere between 24% and 25% for the 3P.

[Operator]

Our next question comes from the line of Nicolas Larrain from JPMorgan.

[Nicolas Larrain, analyst]

I have 3 actually. The first one is you commented on the implementation impacts or the one-off impacts from the efficiency plan. I wanted to see if you could maybe break down what is -- what was nonrecurring of the implementation so that we can see that -- what should be led to the net gain maybe going forward.

Secondly, Gaston, if you could just comment briefly on how you saw trends in April. Specifically, you commented a bit on margins, but I just wanted to see how top line is behaving, if it's improving a bit sequentially versus the first quarter.

And my third one was on inventories, but you answered that already.

[Alejandro Dale, executive]

Thank you, Nicolas, this is Alejandro. About the first part of your question regarding the efficiency plan, in this quarter -- I mean, the total, I would say, one-off cost of that plan was roughly speaking, $50 million. Out of which, give or take, $18 million were in the fourth quarter. In this quarter, in particular, we're talking about a little less than $20 million. But the impact you're going to see moving forward is not only that one-off that should not be there, it's also that most of these activities have been done during this quarter, and the remaining relevant portion is going to be done in the second quarter.

So it's also the fact that you're going to be seeing that fully on complete months presented in our financials. So the one-off, as I said before, a little less than $20 million of the whole plan, which basically is last -- fourth quarter last year, this one and the second one is around $50 million.

[Gaston Bottazzini, executive]

Nicolas, this is Gaston. So regarding your question on how we are seeing April and particularly the sales trends, really, we're not seeing anything much different from what we've seen in the first quarter. As I said, we have a better margin situation, but not a better sales position. It is also relatively hard to come to conclusions because some of the dates are not consistent, particularly Mother's Day came up before last year, and we had some Cyber Days or Discount Days, particularly in the case of Colombia in the first quarter. So there are a couple of important sales events that make the numbers difficult to compare.

But if I had to make a general assessment of sales trends, I'd say we are in a very flat situation compared to the first quarter. Our expectation is that, given both lower inflation, a better sentiment in general, in the public that going forward, we will see some rebound, but not a major one.

[Operator]

Our next question comes from the line of Antonio Hernández from Barclays.

[Antonio Hernández Vélez Leija, analyst]

Regarding online sales in Chile and overall from a consolidated level of online penetration was lower year-over-year, especially in Department Stores. You've already mentioned the Marketplace strategy and of course, that's posting quite solid growth. But could you compare or give more light on this online penetration decreasing? And then if I may, I'll follow up some more.

[Jaime Ramírez, executive]

Sorry, I didn't get the entire question, but I'll try to answer what I think I understood. So you're saying that there was a decrease in online sales in Department Stores, right?

[Antonio Hernández Vélez Leija, analyst]

Online penetration, yes.

[Jaime Ramírez, executive]

Correct. Yes. So this has to do basically with a mix in terms of the categories, right? So as you know, our Department Stores sell either electronics or mostly apparel, right? And what we saw in the market as a whole was actually a decrease in sales of electronics or sort of like hard goods. And those are the goods that Department Stores mostly sell online. And that's why we saw a decrease sort of in the penetration of online sales. They were selling mostly apparel and sort of soft goods in the stores. And that's why we saw an increase in some of the 3P sales in the Marketplace.

So again, it's mostly a product mix situation. So I don't know if that answers your question.

[Antonio Hernández Vélez Leija, analyst]

Okay. Okay. Yes. And my follow-up is you're having the efficiencies plan and of course, what you mentioned -- in the recent Investor Day, you mentioned 200 basis points gross EBITDA margin expansion by the end of this year. How much of that maybe could be delayed because of this, of the weak top line that you're facing and as you've mentioned, the continuous [indiscernible]?

[Raimundo Monge, executive]

I'm sorry, Antonio, that once again, we didn't hear you that clearly. But what we -- I understand you were basically asking about the margin plan, the margin improvement plan, the operational leverage plan that we announced on October last year. Assuming that is, what you can expect from that is basically that already -- give or take, 90% is already fully ended as we speak, as of the date of today. The rest of the part -- the most relevant part should be done by the end of this quarter. So we should expect from -- starting on second half of this year is the full reflection of that improvement in SG&A. Not only SG&A, but there's also some improvement related to some, for example, improvements in the way we do the sourcing of our products.

Not only -- if you remember what we announced on the Investor Day, there were some sort of improvements in the sense that we were not going to bring all of our private labels from Asia, tried to -- shortening the buying cycle in order to react better to consumption environment. There's also some things that have already been done, like the improvement in the use of our loyalty program instead of fully spending marketing. And loyalty as a whole, reducing that, that's already been done. So we should expect moving forward that before is the full implementation of this plan. Relevant part of that has already been reflected in this quarter, but most of that is going to be on the second and third quarter and moving forward.

[Operator]

Our next question comes from the line of [ Eugenia Caballero ] from JPMorgan.

[Unknown Analyst]

So a couple of -- ones from my side. The first one would be regarding your deleveraging plan. So I just wanted to understand better, what's your strategy in place? What are you considering between equity injection, asset sale and profitability improvement? This is something that you have been mentioning. So I just wanted to understand how do you plan to improve your margins? How do you plan to improve leverage? And where do you see leverage going by the end of the year?

A second more specific question would be on the refinancing of part of the 2023 maturities that you said in the release that you already refinanced $312 million, to when would that be? So when is this due right now?

And my third question would be probably on liquidity. You have been refinancing every quarter, some of your short-term maturities. I just want to understand, what's your plan to tackle that?

[Raimundo Monge, executive]

Thank you for your question. Let me take it. I'm going to leave the efficiency part to the end. Let me take the -- probably the most pragmatic part. About the refinancing, when we started this year, we had $1 billion towards the end of first quarter was $600 million. Out of that, and it's mentioned in the press release, $300 million had already been refinanced, it was 2 weeks ago with an international loan. And that was a maturing of the first international bond that we issued in 2013.

The reminded part of what comes for this year, the other $300 million, that's basically -- aside from 1 maturity on Plaza, our real estate shopping mall subsidiary, which already has the funding for that, there's no single material that's beyond $30 million. So we are not -- we've already taken care of more than 70% of the maturity of this year. That was the plan, by the way. It's not something that -- we programmed that. We took our credit -- our committed credit line last year. That's how we financed this international bond.

So the way we're seeing the rest of the year -- and this is -- as I said, it's a different granular maturities that we have among different -- most cases in Chile, I would say, half of that -- a bit over half of that is in Chile and the rest is mainly Colombia and Peru.

About the liquidity that you're mentioning, let me just share with you that we have committed -- I mean not committed, uncommitted credit lines, bank facilities were up to $600 million that are totally unused as of today. So we do have a working capital credit line that we could use. But as I said before, they are totally uncommitted, we're holding on cash as a result of the improvement of cash generation this year, moving inventory, as Raimundo and Gaston mentioned before. We're holding, I would say, time deposits in the range of $150 million on top of that.

So that's the liquidity situation that we had as of today. And in case you're wondering or someone else is wondering, we are seeing a relatively positive local market in Chile. Pension funds have been active in the last 1.5 months, I would say. So we're not particularly concerned for the maturities that we have to see, as I said before, A, because the size of the maturities that we have is fully manageable for the scale of the company. We have working capital credit lines unused as of today. And also, we're holding cash as of $150 million today.

Now regarding the -- you mentioned lots of things about the operational leverage plan that we mentioned. Some of them are -- let me go straight away. We are analyzing the divestment of -- noncore assets, real estate assets, as we had done in the past. We've been -- for the last 4 years, been divesting some noncore assets, real estate, mainly land from the land bank that we have. That's something that we are licensed today.

Given that we are a publicly traded company, we cannot go beyond something like that until we actually execute that, but that's something that's on the table. Certainly, our capital increase is something that we could not disclose, and that's something that the administration of a company's management has no say on that in the meantime. That's why the full focus of management today has been to optimize EBITDA, basically going through an SG&A optimization plan and also a gross margin optimization plan.

One of the things that we are including in this, roughly speaking, there's a big part. And I'm going to try to deactivate this because these are, give or take, a little less than 80 different initiatives. But if I can reaggregate them on different areas, I would say, a big part is in logistics. Basically, we're working on the efficiency of supply traction, then reducing in external warehousing costs and also in the shipping cost improvement, as Jaime mentioned, that's a big area.

And we think if you aggregate everything in logistics, there should be, on a yearly basis, [ precast the voice of any doubt ], something in the range of $70 million. There's certainly something related to, I would say, occupancy or leases that we have. Last year, we -- given the -- I would say, the inventory situation that we have, which among different things it was -- because we were taking late arrivals of our shipments coming from international or from overseas, we ended up having something in the range of $24 million of occupancy. That's something that we also have already secured a plan to avoid that this year.

The reduction in marketing expenses that I mentioned before, there should be something in the range of $20 million on top of that. Also, we're rationalizing the loyalty program. We realized that it's -- has been super well received by the customers, and we are planning to keep that. But at some point, the -- we were probably beyond what the market was willing to -- was doing our competitive market. So there should be savings in that also range for $20 million.

Also, the rest is different type of initiatives of several centralization of different functions between different retailers, shorten the customer cycle, I mean, the purchasing cycle, the provisioning one, basically not only buying as much from Asia -- from overseas that it was the case before, now of sourcing that we're bringing from especially Colombia and Peru in order to react and market, the consumption conditions improve.

So give or take those of the different initiatives that we have in our mindset, as I said before, and I'm sorry for the answer, it's a long list. But we don't have a single bullet, but there's a lot of, I would say, copper bullets that will basically -- and everything that I mentioned in this, this is what I already said, 90% has already been executed. I would say, the benefits of this -- the reflection of this in our P&L will be basically taking care majority on the second half of 2023 and certainly onwards.

[Gaston Bottazzini, executive]

So just to complement, Alejandro this is Gaston. We are looking at more structural beyond the list that Alejandro just mentioned, which said is very long, but we are looking at more structural ways to deleverage the company that we are not ready to disclose because of their nature. But we do have a list of other additional measures.

[Unknown Analyst]

If I could just do a quick follow-up here. Could you share with us the level of leverage you feel comfortable for the end of this year?

[Raimundo Monge, executive]

We have a level of leverage we feel comfortable with, which is ballpark level of 3 -- a little less than 3. Given the volatility of the consumption environment that we're facing, it's something that we don't think we're going to get, but we are working hard on that.

Let me share with you something. This is the third time in the last 15 years that Falabella faces a situation like this in which we have a net debt-to-EBITDA ratio over 6x. In the other 2 times, it was basically due to just like this one, a deterioration of the EBITDA level. That's why we're working hard on that.

We think that the main driver here is we need to improve the EBITDA. The truth is you can fix that one with some other options like the ones that you mentioned and like the ones that Gaston said that we are analyzing but we cannot share today. But that said, we are working hard on EBITDA improvement, level, too, so that we can have -- so towards the end of this year. I'm not -- I'm sure that we're not going to be close to that, to 3, but that's the aim that we have. Again, I would say the midterm for the company.

[Operator]

Our next question comes from the line of Gustavo Fratini from Goldman Sachs.

[Gustavo Fratini, analyst]

How would you characterize the competitive environment for your main retail segments, especially in Chile? Are you losing market share? And if so, what are the drivers behind it?

[Gaston Bottazzini, executive]

Gustavo, thank you for your question. So in general terms, I would say our market share in our main segments in Chile is stable. We have about -- so it depends on how you measure, it's a little bit different. But in general, in hard goods, we have a very high market share, which has gone up during the pandemic and has come slightly down during the last 6 months or so, also because we have restricted inventories, et cetera.

We, in Home Improvement, have seen a similar pattern. Actually, the market share went up substantially during the pandemic because we had a better inventory situation than the competition and now came back down in the last 6 months. And we are about 1 to 1.5 percentage points above where we were before in 2020.

And then in Supermarkets, we have a -- if you talk about Chile, we have a low market share of somewhere between 6% and 7% that has been more or less stable. And we have a much better position in Peru of about 30%, where we have grown substantially and also we have lost maybe 1 or 2 points of market share over the last year, particularly in hard goods.

So that, I'd say, is the overall description. I don't know if you'd like any more color on any particular categories or countries.

[Operator]

Our next question comes from the line of Nicolas Riva from Bank of America.

[Nicolas Riva, analyst]

So I had a follow-up question on what Eugenia asked before about your ratings. And of course, right now, you are rated BBB- by both S&P and Fitch. There is a negative outlook from Fitch. So there is a tangible risk of losing the investment-grade ratings, net leverage in the retail business over 7x. My understanding is the threshold to keep the investment grade ratings from the agencies is 4x net leverage over the medium term.

So perhaps if you can share, to the extent you can, some color in terms of the discussions you're having with the rating agencies? And how much more time do you think you will get before a downgrade to high yield if we don't really see a material improvement in these leverage metrics?

[Raimundo Monge, executive]

Thank you, Nicolas, for your question. Let me share you some color on the different discussions we've had with the rating agencies. And to start with -- and I think we were clear on this one, but with the avoidance of any doubt, I'll go again. We certainly share the different plans that we have for the rating agencies. The action we had, it's true that the numbers that we presented at the year-end, if they're sustainable, they don't reflect the rating that we have. We think they're temporary, and we're working to make sure it's temporary.

But that said, we've been very close with them since that moment, and they understand that. They understand that we had a normally tough second half of last year. They are very close, and I would say they share the different activities that we have. Certainly, we are -- as Gaston mentioned, we're sharing with them different options in case we do not succeed in the EBITDA improvement that we are having here. But this -- I would say they support us, the fund that we have. They are conscious that this -- they gave us some time.

It's not specifically that the rating agencies are sovereign in the way they manage their business, so -- but at least the interactions that we've had with them is that they do believe the fund that we have, they share that. We -- they know that we have some options in case, let's say, A, the consumption environment is still tough moving forward during the second half of the year.

Although they share also with us that, as Gaston and Raimundo mentioned, there's several headwinds we had during the second half of 2022, that we already know that it will not be there. We already have single-digit inflation in Chile, which we didn't have second half of last one.

The FX, we already know it's way lower to what we have, about 20%. Today, it's relatively stable, 800, it's a little below that. It's not a 950 or so, which is the one that we ended up having to buy products during the second half of last year.

Interest rate, not only for the funding of the financial services division, but also for the debt that we need to refinance already. As inflation is going down, you should expect also reduction in inflation.

But to your question, super close relation with them, and they are basically being very supportive in order to make sure that we follow. And if there's something that we need to react, they know that. And for us, as Gaston mentioned before, the rating and the financial strength that we have is the key priority of Falabella. So I'm not putting myself in the situation of becoming a high yield, and we'll do whatever we have to avoid that.

[Operator]

Our next question comes from the line of [ Kamal Busari from Bering ].

[Unknown Analyst]

I just had a quick question on your banking side. I was just wondering, obviously, your banking sector has a mixed result. So I just wanted to see what trends you're seeing and what your plan and outlook was for the rest of the year with regards to your loan book growth, if you're going to increase provisions as well, and what you see NPLs doing as well.

[Gaston Bottazzini, executive]

So I would say in our banking operation, obviously, Chile is by far our largest operation, so I'll start there. What we are seeing basically is in terms of NPLs in Chile, a stabilization and starting to see a decrease. And probably, we're going to continue to do that -- to see that over the next couple of quarters. And this is the country, as I said before, that is further ahead in the curve.

Loan book was growing very fast in Chile. Now loan book year-over-year in Chile is growing at about 7%. And we should see that going forward being more or less stable or even starting to rebound again, but not very -- not -- probably not to double-digit numbers for a while.

In the case of Peru, what we foresee is a stabilization during the second quarter. So it's not there yet. Peru is the country that comes probably second in the curve, but we see that happening during the second curve -- quarter in terms of delinquency. In terms of loan book growth, it's growing now. It's virtually flat, growing at 2%, while it was growing at double-digit numbers last year.

And in the case of Colombia, it's probably the one that comes last in the curve. We see the stabilization of NPLs happening during the second semester of the year. It's also the country we have taken more drastic risk measures and therefore, we should -- we are quite confident that, that is going to happen. It's also the country that has slowed down growth more drastically. It's actually showing negative loan portfolio growth right now.

So I don't know if that gives you an overall view or you want to double-click on any of the countries.

[Operator]

[Operator Instructions] Our next question comes from the line of Alonso Aramburú from BTG Pactual.

[Alonso Aramburú, analyst]

I just wanted to follow up on maybe the comments you made on efficiencies and margins. You've had EBITDA margins roughly in the mid-single digits for the past 2, 3 quarters. The company used to have consolidated margins closer to 12%, 13%. I'm just curious if you can give us sort of a range of where do you see EBITDA margins once you complete the efficiency programs, once you normalize inventories, let's say, in a mid-cycle economic growth cycle maybe next year. Where do you see EBITDA margins on a consolidated level? Can those go back to around 10%? Or maybe you can give us a range.

[Gaston Bottazzini, executive]

Thank you, Alonso, for your question. We think both as a result of the efficiency measures but also as a result of recovering margins, we've seen margins really being under pressure over the last couple of quarters, and we are starting to see that pressure being released. So as a result of that, we do see going back to double-digit EBITDA margins over the next 2 or 3 quarters.

[Operator]

Thank you, sir. We will now turn to Raimundo Monge for closing remarks.

[Raimundo Monge, executive]

Thank you, Gigi, and we would like to thank everyone for joining us today. Our Investor Relations team will remain available for any follow-up questions you may have. Thank you, and have a nice day.

[Operator]

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.